Gold: A Quarter of ETF Inflows … Almost

By Brendan Conway

Gold’s price: What a relief for bulls. The metal finished the first quarter with a gain of nearly 7% and saw a near-reversal in last year’s big negative factor: The ETF money exodus.

Emphasis on “near-reversal.” The flight of money from gold-bullion exchange-traded funds has stopped, but the group still finished the quarter with slight net outflows.

Until this week, it had looked like the outflow streak would be broken. But investors pulled money on the last trading day of the quarter, Commerzbank‘s commodity strategists note this morning, leaving gold ETF holdings down a net 3.4 tons for the period.

Bloomberg News

So, will we see inflows during the second quarter? Commerzbank is sanguine:

We are confident that the ETF outflows will stop once and for all during the course of the year and will no longer weigh in any lasting fashion on the gold price.

I have my doubts, though. If the last few weeks’ price weakness keeps up, we’re more likely to see the group run in place, given the nearly 7% Q1 rise couldn’t spur more inflows.

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APRIL 1, 2014 10:50 A.M.

The Analyst wrote:

Yesterday, Big Y, the new Fed Chair made an emphatic speech in for continuing massive QE as follows: “……. the U.S. economy remains "considerably short" of the Fed's goals of maximum sustainable employment and stable inflation at 2 percent … ….. this extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policy-makers at the Fed….”.

This is a real attempt to walk back from the “six month” fumble at the last press conference. So short term rates will hold to near zero for at least several years (per latest Fed statement). Long term rates, by necessity, will be capped at 3 – 4% (capped by the requirement to service the national debt….. any higher than that would be unsustainable when looked at from a 17 T perspective…). It is quite obvious that inflation will be used to assist paying down the national debt.

Time to back up the truck (or at the very least actively accumulate) gold mining shares. After a start of year run up, gold mining shares are dipping. This could be the last opportunity to max out on exposure to gold mining shares. The perfect alignment of fundamental, technical, political and sentiment for a bullish case in gold mining shares are still in effect and are beginning to gel.

Major gold miners’ cost reduction implementation started last year is producing results. The reduction of gold production (by both major and minor operators) is becoming a reality leading to a shortage of supply. Even majors like Barrick has projected lower gold production. The small operators (about 70% of world gold production is done by small operators) are either already out of business or hanging on by a thread as they do not have the deep pocket nor the credit facility to linger on.

In the mean time, the Asian demand for gold continues to pick up big time and unabated. Even Russia has started to accumulate gold during 1Q 2014… guess in preparation for a show down over Ukraine.

Double bottom for gold prices set in late 2013 are still holding and showing no signs of being violated…. all with higher highs and higher lows.

Sentiment wise, increasing number of major players are tip toeing back into the gold market and this trend is snowballing with the general stock market in a continual malaise while staring at a major correction or bear market turn this year. Outflow of gold ETF has stopped and gold ETF inflow is emerging.

With the emergence of recovery in Europe and the continuation of fits and starts of US recovery, inflation, while it has been lagging, will start kicking in around 2Q (may be around June 2014). Other commodities have already started pointing up.

In the mean time, the Iran nuclear negotiation is coming to a head in April. With Russia at odds with the west and being sanctioned, Russia, while a party to the original negotiation, will no longer feel obligated to align with the West and will increasing tilting toward Iran…. if nothing else but for a push back on the sanctions. As a result, Iran will feel emboldened not to compromise. This will be the political flash point (in April – May time frame) that could act as a catalyst for the next leg run up for the gold mining shares.

So, this dip is the “golden” (no pun intended) and probably the last opportunity to get in the ground floor on the next leg up to make some serious money. Many folks did not get in at the tail end (Dec) of 2013 (as I recommended in a December piece)
So, back up the truck on major gold miners and increase exposure big time. You will not only protect against erosion of the equity profit but also stand ready for another big run up of the major gold miner shares. Do not get caught short this time around.

APRIL 1, 2014 3:03 P.M.

Murphy wrote:

We couldnt break the 1430 mark which is the upper rail of our downtrend line. We actually only made it to 1392 before we bounced and now stand at a 50% retracement, We broke that 50% retracement and will probably drop further as a result. GOLDS time is coming but it isn't yet hold on to some dry powder. THe next time we attempt to break the downtrend line it will be around the 1390ish mark, That will then become support and backtest to that area will be a buying opportunitie. For now i would be either short or all in cash waiting for a tradable bottom. April to July are usually weak time for PMs also.

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